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IFS warns on Osborne Budget plans


George Osborne's Autumn Statement is set to come under more scrutiny.

George Osborne's Autumn Statement is set to come under more scrutiny.

George Osborne's Autumn Statement is set to come under more scrutiny.

Chancellor George Osborne may have difficulty in making his Budget sums add up, a leading economic think-tank has warned.

The Institute for Fiscal Studies said he was relying on "uncertain" revenues from a crackdown on tax avoidance and an increase in the bank levy to fund a series of giveaways in his Autumn Statement yesterday.

Mr Osborne told MPs that the measures he had set out were "fiscally neutral" - leaving the overall level of projected Government spending unchanged.

However, IFS director Paul Johnson said the Chancellor's cuts in fuel duty, employers' National Insurance contributions and business rates, and his introduction of a tax break for married couples would cost the Exchequer around £2.5 billion a year.

The increase in the bank levy is only expected to raise around £500,000, while the new anti-avoidance measures are slated to bring in an "inevitably uncertain" £1 billion - leaving a £1 billion shortfall.

At the same time, the Treasury is assuming that the £750 million a year cost of the Liberal Demorcats' f ree school meals for five- to seven-year olds will be swallowed up into the "overall spending envelope" from 2016-17 - which would mean even deeper cuts in other spending.

"The Chancellor continues to make specific promises on spending increases whilst stating that he will keep total spending at the same level. He can't keep doing that," Mr Johnson said.

"Whilst the costs of his tax cuts are pretty definite, the benefits from his anti-avoidance measures, and indeed of the increase in the bank levy, are rather less certain."

The IFS warned that Mr Osborne's plans to return the budget to surplus by 2018-19 implied further hefty cuts to public services over the next five years.

By the end of 2013-14, Whitehall departmental spending will have fallen by just over 8% and without further tax rises or welfare cuts that looks set to rise to 20% by 2018-19.

The IFS said that would mean a pick-up in the rate of cuts to public services from 2.7% a year to 3.7% a year and that just to avoid such an acceleration would require a further £12 billion a year in welfare cuts.

IFS deputy director Carl Emmerson said: "These forecasts imply historically very low levels of spending on public services as a share of national income.

"That raises the obvious question as to whether it is realistic or whether an alternative choice might be made - whether we would choose instead to deduce the deficit less quickly or whether we choose to engage in a further net tax rise or a further welfare cut to lighten the load."

The IFS also questioned the method used by Labour to calculate shadow chancellor Ed Balls's claim that the average working person is now £1,600 a year worse off then they were when the Coalition came to power in 2010.

Mr Johnson said Labour had not taken account of tax and benefit changes while the measure of inflation it used in its calculations had lost its Office for National Statistics classification.

Nevertheless he said Labour's figures were "pretty consistent" with the evidence from survey data on what had happened to household incomes.

Earlier, Mr Osborne said Britain's state pension system would have faced collapse if he had not taken action to raise the age at which people will be able to retire.

Under plans set out in the Autumn Statement, millions of people in their 30s and 40s will have to work longer as state pension age rises to 68 in the mid-2030s and 69 in the late-2040s.

The move sparked union protests that young people are being expected to "work until they drop", but Mr Osborne insisted it was essential to prevent the whole system becoming unaffordable.

"The reason we do this is because our country is getting older and we want to go on being able to afford really good pensions for people. There is not a bottomless pit of money," he told BBC1's Breakfast.

"The alternative is a pension system that would collapse because it was unaffordable, That's what I want to avoid. It is another classic example of a difficult decision but one that I think people know has to be made.

"It is all about making this country more sustainable in the future, not leaving the next generation with the debts and the decisions that we were not prepared to take ourselves."

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